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TWSE symposium gauges future of Taiwan’s ETF market

2012/09/07 17:01:42

Taipei, Sept. 7 (CNA)Financial experts and officials shared their views on Taiwan’s exchange-traded fund (ETF) market and the global trends in a symposium held by the Taiwan Stock Exchange (TWSE) in Taipei on Sept. 4.

Over 200 officials, academics, fund managers and brokers took part in the symposium that opened with the remark by TWSE Chairman Schive Chi, who said there is still room for ETF – a popular product at major stock exchanges around the world – to grow in Taiwan.

The trading volume of ETFs only accounts for 1.2 percent in the overall stock trades in the Taiwan market, while the figure is 20 percent in the United States, 7.23 percent in South Korea, and 4.67 percent in Hong Kong, Schive said during the symposium’s opening ceremony.

Schive also noted that Taiwanese investors’ strong demand in ETFs has not reflected in the local bourses, although 17 percent of their investment in overseas funds is in ETFs.

While he sees ETF as a product that should be promoted since he took the post of TWSE chairman four years ago, Schive suggested in his speech great introduction of overseas ETFs and local ETF products tracking overseas indices in the market to meet local investors’ demand.

After the opening ceremony, Wang Yung-hsin, deputy director-general of the Securities and Futures Bureau under the Financial Supervisory Commission(FSC), gave her analysis during the speech on the future development of Taiwan’s ETF market. Wang said the local ETF market has seen greater growths than mutual funds in the past nine years, similar to the development in the global market.

However, Wang also pointed out several challenges facing the local ETF market, including the lack of liquidity, the great premium or discount, and the high tracking error of some products, she added.

In addition, the lack of product variety and the high trading cost of bond ETFs also affected investors’ interests to invest in the market, Wang said.

For long-term development in ETF market, Wang suggested the response measure including facilitating the liquidity, lowering the transaction tax on bond ETFs, improving investment trust companies’ competitiveness, and increasing the number of overseas ETFs listed in Taiwan.

At last, Wang also noted that the FSC supports of the ETF market development and values its importance and would keep improving the related regulation and policy.

Following Wang’s speech, the symposium continued with a session moderated by TWSE Senior Executive Vice President Michael Lin on strategies for investing in ETFs.

Lin was joined by Liu Tsung-sheng, president and CEO of Yuanta Securities Investment Trust Co., J.J. Lee, chief investment officer and executive vice president of Fubon Asset Management Co., and Darren Hsu, associate vice president of Fuh Hwa Securities Investment Trust Co., who shared their experiences and plans for future products.

According to Liu, Taiwan’s ETF market has moved from the phase of introduction to growth in the product life cycle, with growing numbers of institutional and retail investors tapping into the market in recent years.

For the future of Taiwan’s EFT market, Liu suggested the creation of exit mechanisms of ETFs, introduction of new type of products, and the launch of local ETFs in overseas market.

Furthermore, Lee said regulators should work closer with the front-end and back-office of the ETF market and integrate resources to strengthen the market structure.

Besides expanding ETF product line in Taiwan with innovation, Lee said more efforts should be put into educating investment company employees and investors, increasing the investment channels, and exploring overseas markets.

Lee added that the review process of new ETF products should be simplified and the liquidity provider rules and the hedging tools should be introduced.

Meanwhile, Hsu said ETFs have become an asset class that allows asset managers to better diversify risks and quickly adjust asset allocation when the traditional methods of moving between stocks and bonds are no longer enough in the current fast-changing market with shorter cycles.

With Lin asking for solutions to the situation of investors rather choosing overseas ETFs than buying ETFs through the local stock exchange, Liu said issuers should reposition their products to better target investors, while Lee noted the importance of matching investors’ demand with ETFs.

Wang concluded the session by saying that regulators welcome more diversified products in the market and expect local investment trust companies to keep improving management skills and trading strategies for further expansion in Taiwan ETF market.

Professor Chui Shean-bii of National Taiwan University’s Department of Finance moderated the second session on the market application and outlook of index investment.

Liu Zhong, deputy general manager of Shanghai-based China Securities Index Co., Frank Kang, the associate director of Index Research at FTSE International, and Jason Tuan, the Head of Asia Business Development of Research Affiliates joined Chiu in the session.

China Securities Index’s Liu said development of index investment in China began in 2002 and there were 180 ETFs as of the end of June this year. The rapid development is the result of demand in the market for innovation, policy supports and the global trends, he said.

Liu Zhong predicted that Taiwan and China will work closer in this area under the warming economic ties across the Taiwan Strait, and because “China needs the experience and Taiwan needs the market.”

The easing of restrictions on cross-strait investment, Liu Zhong said, have made Taiwanese and Chinese markets more interconnected, and the Greater China region the most important economy in the Asia-Pacific.

Kang suggested investors choose products according to their investment targets, and pointed out that ETFs and other index-related products are investments that require a certain period of time before seeing results.

Products investors can consider under the current market condition, Kang said, including those tracking real estate, infrastructure and minimum vairance indices.

Real estate index products provide better diversification than global stock or fixed-income products, while infrastructure index products offer predictable cash flow and dividends, according to Kang. Products linked with minimum vairance indices are portfolios that spread ricks for investors, he added.

Meanwhile, Tuan said index investment is efficient and the future trend, with money invested through such channels accounting for over 15 percent of US$45 trillion in the global stock markets.

Tuan also noted the growing portion of passive investment in the portfolio of institutional investors, pointing out that 81 percent of Japan’s Government Pension Investment Fund is in such long-term investment positions.

Asked by Chiu about the best index investment approach in the current market, Liu Zhong suggested investors use a combination of ETFs tracking different indices and overseas ETFs to improve profitability.

Kang said investors should consider their own risk tolerance and diversify their investment in ETFs tracking different assets or in various countries, while Tuan said investors should pay attention to the market fundamentals and periodically rebalance portfolio.

With the enthusiastic participation of experts from various backgrounds during the symposium, exchanging their knowledge and experience, TWSEbelieves the event should be able to make long term impact as a result.